High US joblessness puzzles economists

November 9, 2011 6:09 pm - Financial Times

High US joblessness puzzles economists

By Robin Harding in Washington

The stubbornness of high unemployment despite a steady rise in the number of job openings in the US since the end of the recession is posing a puzzle to economists as they try to understand the troubled labour market.

New data released this week show that the number of vacant jobs in the US rose to 3.4m in September – the highest in more than two years – even as the unemployment rate remains mired at 9 per cent.

The question is whether the rising rate of job openings, derived from the Job Openings and Labour Turnover Survey, is the better indicator of a steady recovery in the labour market or whether the fact that vacancies are being advertised but not filled points to an underlying malaise.

John Canally, an economist for LPL Financial, says at least one bit of good news from the Jolts survey: the proportion of people leaving jobs who chose to quit is now back up to 50 per cent. That level is getting close to the pre-recession norm, and if people have the moxy to quit a job of their own accord, says Mr Canally, it indicates some confidence in finding a new one.

Mr Canally suggests that the difference between job openings and hiring may be due to “mismatch”. That would mean that the jobs employers have after the recession do not suit the location or skills of the unemployed. It is bad news if this is the answer because it suggests that recovery in demand for labour will be slow to bring down the unemployment rate.

“This is the argument that if you had folks out 80 miles in the desert in Las Vegas building houses, then those jobs aren’t coming back,” says Mr Canally.

Steven Davis, an economics professor at the University of Chicago Booth School of Business who has studied the Jolts data, says that mismatch is one possible reason that vacancies are rising while net hiring is not – but he points to two others as well.

“One set of factors is that it’s not just the number of vacancies but how aggressively employers are trying to fill them,” says Mr Davis.

There is anecdotal evidence that employers are responding to high unemployment and uncertain demand by fishing for the most productive workers. They may advertise a vacancy but have no intention of actually hiring unless a particularly good candidate applies.

“It may also depend on how intensively workers are looking for jobs,” says Mr Davis. This third explanation is that, after being unemployed for a long time and being repeatedly turned down for jobs, then workers stop looking so hard. As a result, even if there are more job openings, the efficiency with which workers are matched to them may have fallen.

The second of the two hypotheses would be less painful for the economy in the long-run because, as and when a recovery gathers steam, workers and employers will start to court each other with greater intensity.

Mr Canally and Mr Davis both suggest that the extreme economic uncertainty over the summer could explain why the labour market recovery ground almost to a halt, despite high corporate profits that might otherwise lead to a faster recovery in business investment and job creation.